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New Report Shows the Internet of Things' Economic Impact Could Surpass Its Hype -- But There's Just One Problem

By Chris Neiger – Jul 1, 2015 at 8:50AM

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Here's what could hold back the Internet of Things' potential.

Plenty of articles tout the benefits of the Internet of Things, or IoT, and with good reason. The IoT is already automating systems, collecting and analyzing data, and allowing devices to make better, more efficient decisions. 

Research from IDC shows the IoT could be worth $7.1 trillion globally by 2020, and Gartner projects that there will be 26 billion Internet of Things devices by that same year. But last week, McKinsey & Co. published its own data showing that the IoT may have even greater long-term potential. The research group forecast that the Internet of Things industry could actually be worth up to $11 trillion by 2025.

"Our central finding is that the hype may actually understate the full potential of the Internet of Things," the McKinsey report says. There's just one problem: In order for the Internet of Things to reach its full economic potential, all the data collected by devices and systems must be analyzed and applied -- and that's not happening. At least not yet. 

IoT's 90% problem
While a host of devices such as smartphones, wearable technologies, connected industrial equipment, automobiles, and smart agriculture sensors can collect massive amounts of data, the McKinsey report notes that most of the information currently being collected isn't being put to use: "Most IoT data collected today are not used, and the data that are used are not fully exploited. A critical challenge is to use the flood of big data generated by IoT devices for prediction and optimization." 

McKinsey isn't the only organization to discover this. IBM (IBM -0.02%) says 90% of data collected by smart IoT devices goes completely unused, and that the data starts losing its value just a few seconds after being gathered. 

IBM says the biggest culprit in unanalyzed data is the fact that enterprise systems don't often communicate well with each other, so pairing information together from different sources doesn't always happen. To counter that problem, IBM said last year it would invest $3 billion between now and 2019 to help ensure that data doesn't go unanalyzed and that companies pull data together to make better use of it. 

For example, IBM teamed up with The Weather Company in March to share weather data with businesses. This can help insurance companies save on weather-related claims, enable grocery store chains to adjust their inventory before a major storm hits, or inform energy companies that energy usage is likely about to spike. 

Where the Internet of Things goes from here
While analyzing all this data is a serious problem for companies right now, I believe IBM and others will ultimately figure out the best way to analyze and share it efficiently. There's simply too much at stake not to. The McKinsey report says the potential IoT economic impact for factories alone could be between $1.2 trillion and $3.7 trillion globally, and that improving wellness and managing illness could be worth up to $1.6 trillion by 2025.

The big thing to remember here is that while there's lots of talk around the Internet of Things, and plenty of people still believe the technology is overhyped, the economic benefits are real. With IBM already working on ways to make data more interchangeable and shareable, it appears companies are already on their way to maximizing the IoT's potential. 

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Gartner. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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